The team behind the Linden Logistics Center in Linden is nearing completion of the project’s third phase, which includes buildings of about 333,000 and 517,000 square feet, with an estimated delivery of mid to late spring. The buildings will be the sixth and seventh at the 350-acre campus. — Courtesy: Greek Development
By Joshua Burd
The transformation of the site now known as Linden Logistics Center has been nothing short of prodigious, one that began well before its developers broke ground in 2019 on the first of seven new Class A industrial buildings.
First came a lengthy environmental cleanup for a property that saw more than a century of chemical manufacturing. Then came a massive build-out of infrastructure needed to help navigate the 350-acre parcel, from an internal road network to a bridge that provides direct access to the complex.
“All of the heavy lifting on this site is now pretty much done,” said David Greek, managing partner of Greek Development, who noted that infrastructure was a dominant focus during the project’s first phase. “Now it’s a lot easier to drive to the site and understand our vision, because our vision has more or less been built. … The site is there, you can see exactly where everything’s going and the infrastructure to access it is built.
“We no longer have to explain to tenants where the bridge is going to be and how it’s going to work. They drive over it to get to the site. They understand that just by getting there.”
The Linden Logistics Center is nearing completion after four years of construction, a span in which demand for industrial space rose to historic highs before the recent economic uncertainty. The team of Greek Development and Advance Realty Investors has stayed on track during that time, building nearly 3.8 million square feet over three phases while attracting high-profile tenants to a site just east of the New Jersey Turnpike.
They’re also willing to pivot, when necessary, Greek said, pointing to the site of what would be the park’s final building. As an alternative to an eighth warehouse, which would span 319,000 square feet, the team has developed plans for a 17-acre parking lot with some 500 trailer stalls.
“It’s one of the interesting developments over time,” Greek said. “We laid out this park using best practices in 2017 and 2018, when this was approved. But given the current environment and the types of tenants we’ve leased to already, we’ve come to understand that trailer parking is a much bigger part recently of the leasing activity.”
That goes for both standalone parking requirements and those from warehouse tenants.
“The amount of trailers that come with the standard building lease in this location just seems to have increased quite a bit over the last five years, to the point where we believe it’s justified economically to not build a building and build a trailer lot in its stead,” Greek added. “Obviously, we’re not doing that just to make people happy. We’re doing it because it’s a leasing amenity we think we need in this park.”
According to Cushman & Wakefield, demand for industrial outdoor storage space in the Meadowlands and Port submarkets has skyrocketed from 2020, when monthly rents averaged about $16,000 per acre. That figure has grown by 127 percent, to more than $36,000 in 2022, although the firm estimates it’s now closer to $40,000 per acre per month.
The developers of Linden Logistics Center have also captured that demand at another piece of the campus. Greek noted that the tenant at Building 500, which he declined to name, needed additional outdoor storage soon after signing its lease at the nearly 481,000-square-foot building, prompting ownership to convert a nearby eight-acre parcel to a lot for 117 trailers. The site was “too small and too oddly shaped to build a building on” and was not included in the joint venture’s original approvals, he said, given that it was outside the park’s main road network and would have required additional infrastructure.
But the lease rates for parking “have unlocked it for us” and justified the cost of building the access to the site, while importing fill to elevate the property above the floodplain.
“We never planned on building a building, but knew it could be used as parking if we needed it,” Greek said. “Originally, we just couldn’t justify the expense of building it based on the revenues we thought we can produce, but now that is a relatively easy math for us to do.”
The pivot comes as the developers near completion of the park’s third phase, which include buildings of about 333,000 and 517,000 square feet. They’re both slated to deliver in mid to late spring, Greek said, adding that the team “(has) been receiving strong activity and interest and are currently engaged with several potential tenants for the buildings.”
Current tenants at Linden Logistics Center include World Distribution Services, Peloton Interactive Inc. and Samsung, according to multiple reports, occupying a combined 2.1 million square feet. The deals have been among the state’s largest in recent years, in a market in which demand for industrial space is still robust in spite of concerns about the economy. A report by CBRE found that availability in northern and central New Jersey was a record low of 4.1 percent heading into 2023, following 19.9 million square feet in total leasing activity last year and 6.1 million square feet of positive absorption, or overall growth in occupancy.
According to the firm, annual leasing was down 22 percent from 2021, even as average industrial rents in the region grew 3.4 percent to $19.02 per square foot.
“While New Jersey’s industrial market remained strong in 2022, fears of a recession, climbing interest rates and an overall market unease started to create headwinds by the end of the year,” said Thomas Monahan, a vice chairman at CBRE. He noted that, while the market recorded its 24th consecutive quarter of occupancy growth in Q4, that total was 7.6 percent below the five-year quarterly average of 2.69 million square feet.
“Despite the quarter’s improved net absorption, 2022’s total was only 6.1 million square feet, the lowest annual total since 2017.”
Greek has also seen deals “taking a little longer to get done, but that’s measuring from the peak” of 2021, which is “not something I expect to be replicated any time soon.” It was a perfect storm of supply chain and labor issues, he said, but those challenges have subsided in many cases.
“The amount of demand we’re seeing today is probably more commensurate with the level of demand we were seeing three or four years ago, which I would say is the more normal level of demand,” Greek said. “Instead of having five tenants fight for one building and bid off against each other, you might have one or two. And those one or two might take two or three more months to get a lease signed than they would have (in late 2021) because they’re not competing against other users, so there’s less of an incentive to move quickly.”
He added that ownership is “not concerned about our ability to lease these spaces.” Nor is it hindered by the slowdown in rent growth, he said, noting that the differential in pricing between phases one and two was close to 50 percent and thus well above expectations.
On the other hand, the debt and equity markets have softened significantly over the past year, making landlords “a little more willing to make deals and engage with tenants earlier in the process. That softness has also raised doubts about the ability to secure capital and construction financing for new projects, especially for speculative developments.
That’s not to say Greek and its partners aren’t looking for new opportunities, including the next Linden Logistics Center.
“What’s changed is really more recent … As economic uncertainty has increased, there’s been a de-risking from investors, and I think the biggest de-risking they’ve done is to manage the time of their investment,” he said. “So what investors are looking for today is something more immediate, something that’s more of a sure thing that doesn’t have the amount of risk that we took on this, both environmentally and approval-wise.”
That would make it more challenging to find institutional partners for a phased campus with a five- to 10-year timeline, he said, “but I’ll temper that by saying these opportunities are so few and far between that if we were to see another opportunity to acquire something like the Linden Logistics Center today, we’d be very aggressive about it. And there is certainly money out there that would be willing to take that risk, probably just not nearly as much of it as there was this time last year.”